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FDRA Expects “Roller Coaster Ride” Under Trump
Vicki M. Young
6 min read
The Footwear Distributors and Retailers of America (FDRA) wants the incoming Trump administration to think about tariffs in a “surgical way.”
There have been conflicting reports over whether advisors to President-elect Donald J. Trump are considering a plan for a gradual increase, or “slow walk,” in tariffs over a month-by-month period. Campaign rhetoric included an immediate 10 percent hike on goods from China, and a 25 percent threat on imports from Canada and Mexico. While nothing is certain yet, the FDRA are taking tariff threats seriously.
“We take those seriously. We don’t know how they will play out. Our expectation is that there’ll be some kind of tariff action,” FDRA CEO Matt Priest said Thursday during a press briefing. “Our hope is that the President, his team, thinks very clearly about the inflationary aspects of tariffs on things like footwear that are not strategic industries, do not have robust domestic manufacturing— meaning they do not have robust union membership here in the States—and are absolutely inflationary, and so that’s our biggest concern.”
He said that the next four years will be a “roller coaster ride,” with some ups and some downs. “I think there’s some opportunities too,” Priest added, noting that where possible, the FDRA will be “collaborative” so it can provide input in negotiating trade deals to “ensure [that] the American footwear industry and our consumers have a voice in this during this process.”
Currently, over 99 percent, or 2.5 billion pairs of shoes every year, are imported. The U.S. makes about 25 million pairs, but that’s mostly for military applications, Priest said. He added that the top three suppliers are China, Vietnam and Indonesia.
And as the U.S. production matured, lower-value industries were shed to make room for sectors with higher growth rates. The maturation of the market-share shift to China over the last 10 years has now seen a shift to Vietnam, with some trickling down to Indonesia and Cambodia. But Priest said that even with the trickle-down, “the supply chain stretches back into China. Materials flow from China. So think of the supply chain almost as a slinky. It’s extended out now, which makes it even more complicated. And that’s obviously inflationary and complex.”
Priest emphasized that the footwear industry is not that diversified when most of the products come from just three countries.
As for the concerns over inflation, he said the majority of the pairs of footwear imported from China and Vietnam are tagged as “value product,” sold at mass retailers that include Target and Walmart for working families and consumers. “Most of the high-end stuff has moved out,” he said, adding that most of the athletic, branded athletic, hiking boots and other branded items are more expensive and are produced outside of China. That means Trump’s tariff proposals, particularly if he goes after China, will be inflationary for working families, Priest emphasized.
Whether Trump gets the 60 percent tariff hike on products from China or just 10 percent to 20 percent on everything remains unclear. “We do know that he has a desire to create some negotiating leverage, in particular, with key trading partners,” Priest said.
He said the big difference between Trump’s first administration and the incoming one is that the President-elect now has a better understanding of the process and how it works. Priest stated that his hope is that Trump and his team fully understand that even if their tariff declarations are inflationary, that they—pragmatically and operationally—consider a plan that is tailored and surgical so “it’s not long lasting if they go big.”
Also on the call was Mike Jeppesen, a footwear expert who is also the lead director at Manitobah Footwear, who provided some insights on tariffs.
Jeppesen said that duty rates typically are set for the long haul, and that once a rate is installed for a product import, it seldom goes away. “That revenue stream, $4 billion we pay to the U.S. government in import duties of footwear, it’s really hard to replace. So once it’s in place, it’s very hard to get rid of duties,” he said.
While the industry is still dealing with duties from Trump’s first administration, the sector is still dealing with duty rates from 1930, which is nearly 95 years ago, Jeppesen said, adding that once we impose duties on imports, those impacted countries retaliate by imposing one of their own. That hurts U.S. companies since the consumers in countries imposing retaliatory duties will now pay higher prices for American imports, while the higher cost goes directly into those countries’ governmental coffers.
He noted that the U.S. footwear industry pays on average around 20 percent on duties. A pair of sneakers that costs $20 to produce in China has an added cost of $5 to move it across the border, giving it a U.S. landing cost of $25. The wholesale price to the retailer is $50, but is marked up to $100 at retail for the brand’s margins and distribution and sales support functions, and the retailer’s margin to adjust for its discounts on the product.
Given the same scenario, if the duty rate is increased to 30 percent, the production cost remains the same, but other costs head up. The new U.S. landing cost is $27, and the wholesale price becomes $55, with the suggested price at retail that consumers pay now $110.
“There’s been some crazy numbers thrown around by the incoming administration about how much they want to put on different countries and different product ranges. But you know, if you’re going to 60 percent, you can do the math. It’s another $60 to that one pair of shoes in retail,” the Manitobah director said.
Jeppesen also said duty rates can be anywhere from 6 percent to 67 percent , depending on product construction and design, adding that there’s “no logic” to the rate structure. “Men’s shoes imported from Italy that may cost up to $1,000 in retail has lower percent duty rates than a pair of plastic pitch shoes coming out of China,” he said.
And Jeppesen also noted that many of the footwear firms are publicly traded companies that have a shareholder obligation to deliver profits, meaning that no one is going to absort the duty rates. Compounding the problem is that “[w]e cannot make shoes in the U.S. anymore. We don’t have the infrastructure, and it’s a price compare,” he said. Jeppesen explained that the hourly rate in China and Vietnam is about $2.50 an hour versus $25 in the U.S. And after factoring in other costs such as health benefits and so on, a shoe that cost $20 to produce overseas would cost $100 to produce stateside.
He also said that the move in production out of China was not due to the rate increase, but a tapering off of available workers in Chinese factories because of its one-child policy.
